minnesota department of labor and industry construction codes and licensing division

MINNESOTA MINNESOTA DEPARTMENT OF LABOR DEPARTMENT OF LABOR

AND INDUSTRYAND INDUSTRYConstruction Codes and Licensing DivisionConstruction Codes and Licensing Division

Department of Labor and Industry, 9/08Department of Labor and Industry, 9/08

Independent Contractor Exemption CertificateIndependent Contractor Exemption Certificate

PresentationPresentation AgendaAgenda

1.1. OverviewOverview

2.2. Statute and RuleStatute and Rule

3.3. Nine Factor testNine Factor test

4.4. ApplicationApplication

5.5. ImplicationsImplications

6.6. Q&AQ&A


Why is this certification necessary?Why is this certification necessary?

According to conservative estimates, 14% of According to conservative estimates, 14% of Minnesota employers misclassified at least one Minnesota employers misclassified at least one worker as an independent contractor in 2005worker as an independent contractor in 2005

To address this issue, the MN Legislature To address this issue, the MN Legislature enacted MN Statute 181.723 in 2007 which enacted MN Statute 181.723 in 2007 which requires individuals who wish to work as requires individuals who wish to work as independent contractors in the construction independent contractors in the construction industry, to obtain an Independent Contractor industry, to obtain an Independent Contractor Exemption Certificate (ICEC) Exemption Certificate (ICEC)


Why is this certification necessary?Why is this certification necessary?(con’t)(con’t)

Workers misclassified as independent Workers misclassified as independent contractors do not receive adequate contractors do not receive adequate benefits and protections. benefits and protections. For the purposes of unemployment For the purposes of unemployment insurance, wage and hour and insurance, wage and hour and occupational safety and health laws, occupational safety and health laws, workers without an ICEC will automatically workers without an ICEC will automatically be considered be considered employeesemployees of the contractor of the contractor for whom they work for whom they work


Statute and RuleStatute and Rule

2007 MN Statute 181.7232007 MN Statute 181.723

MN Rule 5202MN Rule 5202

Enforcement effective January 1, 2009Enforcement effective January 1, 2009


Who is covered by the new law?Who is covered by the new law?

This law applies to individuals/sole This law applies to individuals/sole proprietors performing public or private proprietors performing public or private sector commercial or residential building sector commercial or residential building construction or improvement services.construction or improvement services.

The law only applies if the individual is The law only applies if the individual is performing services in the course of the performing services in the course of the hiring person’s trade, business, profession hiring person’s trade, business, profession or occupation. or occupation.


Who is exempt from the new law?

It does It does NOTNOT apply to: apply to: Corporations, cooperatives, limited liability Corporations, cooperatives, limited liability

companies, partnerships or other business companies, partnerships or other business entities created by statuteentities created by statute

Individuals contracting directly with a homeowner Individuals contracting directly with a homeowner or property owneror property owner

Construction cleaning and janitorial servicesConstruction cleaning and janitorial services Manufacturers, retailers, and suppliers who do Manufacturers, retailers, and suppliers who do

not install or attach their productsnot install or attach their products Some landscaping services:Some landscaping services:


Landscaping that does require ICECLandscaping that does require ICEC

New landscaping performed as part of New landscaping performed as part of a contract for the construction or a contract for the construction or improvement of a building.improvement of a building.

Minn. Rule Pt. 5202.0120, subp. 3Minn. Rule Pt. 5202.0120, subp. 3


Impact on EmployersImpact on Employers

Individuals engaging in Individuals engaging in construction work without an construction work without an ICEC will automatically be ICEC will automatically be

deemed to be employees of the deemed to be employees of the contractor(s) for whom they are contractor(s) for whom they are

working.working.


Impact on Employers Impact on Employers (Con’t)(Con’t)

The employer will be responsible for The employer will be responsible for compliance with the following:compliance with the following:

• Workers’ compensation insuranceWorkers’ compensation insurance

• Unemployment insuranceUnemployment insurance

• Workplace health and safetyWorkplace health and safety

• Labor standardsLabor standards

• Tax withholding, including FICATax withholding, including FICA


To Obtain an ICECTo Obtain an ICEC

To obtain an ICEC and operate as an To obtain an ICEC and operate as an independent contractor in the state of independent contractor in the state of Minnesota, individuals must be able to Minnesota, individuals must be able to demonstrate that they are able to meet the demonstrate that they are able to meet the conditions set out in the new law’s nine-conditions set out in the new law’s nine-factor test. factor test. This is the same nine-factor test that has This is the same nine-factor test that has governed the construction industry under governed the construction industry under existing workers’ comp statutes.existing workers’ comp statutes.


The Nine-Factor TestThe Nine-Factor Test

In order to be deemed an independent In order to be deemed an independent contractor, an individual must meet contractor, an individual must meet allall ninenine factors: factors:

1.1. Maintain a separate business with their own Maintain a separate business with their own

office, equipment, materials and other facilities.office, equipment, materials and other facilities.

2. Hold or have applied for a federal employer 2. Hold or have applied for a federal employer identification number (FEIN), or provide proof identification number (FEIN), or provide proof of filing of individual taxes for services of filing of individual taxes for services provided the previous year.provided the previous year.


ICEC – Nine-Factor Test ICEC – Nine-Factor Test (Cont’d)(Cont’d)

3. Operate3. Operate under contracts to perform specific under contracts to perform specific services for specific amounts of money and services for specific amounts of money and under which they control the means of under which they control the means of performing the services.performing the services.

4. Incur the main expenses related to the services 4. Incur the main expenses related to the services that the individual performs under contract.that the individual performs under contract.

5. Is responsible for the satisfactory completion of 5. Is responsible for the satisfactory completion of services and is liable for failure of completion.services and is liable for failure of completion.



6. Receive compensation for services under a 6. Receive compensation for services under a contract on a commission or per-job competitivecontract on a commission or per-job competitive

bid basis and not any other basis.bid basis and not any other basis.

7. May realize a profit or suffer a loss under 7. May realize a profit or suffer a loss under contracts to perform services.contracts to perform services.

8. Has continuing or recurring business liabilities 8. Has continuing or recurring business liabilities or obligations.or obligations.



9. The success or failure of the individual’s 9. The success or failure of the individual’s business depends on the relationship of business depends on the relationship of business receipts to expenditures.business receipts to expenditures.


ICECICECAn ICEC permits individuals to work as An ICEC permits individuals to work as independent contractorsindependent contractors

Certificate holders, however, may work as either Certificate holders, however, may work as either independent contractors or employeesindependent contractors or employees

To be an independent contractor, in addition to To be an independent contractor, in addition to having an ICEC, having an ICEC, the conditions of the work the conditions of the work relationship must also meet the nine-factor testrelationship must also meet the nine-factor test


What do I do after my subs get the What do I do after my subs get the ICEC?ICEC?

Use the DLI ICEC Lookup Use the DLI ICEC Lookup Print the Certificate Print the Certificate Keep on file for 5 yearsKeep on file for 5 years Check photo IDCheck photo ID

Use the 9 Factor Test in work relationshipUse the 9 Factor Test in work relationship

Check MN Secretary of State Office online Check MN Secretary of State Office online for status of other business entitiesfor status of other business entities


To Obtain an ICECTo Obtain an ICEC

To Obtain an ICEC, individuals must To Obtain an ICEC, individuals must complete and submit an application that complete and submit an application that establishes they are able to meet the establishes they are able to meet the conditions required to operate as an conditions required to operate as an independent contractor.independent contractor.


ICEC - ApplicationICEC - Application

DLI has the ICEC application and DLI has the ICEC application and instructions available on its Web site at instructions available on its Web site at www.dwww.dli.mn.gov/ccld/icec.aspli.mn.gov/ccld/icec.asp..

The application and the renewal fee for the The application and the renewal fee for the certificate is $165.certificate is $165.

Independent contractors are required to Independent contractors are required to renew their exemption certificate every renew their exemption certificate every four years (2010 law change).four years (2010 law change).


ApplicationApplication


Required InformationRequired InformationSection ASection A

Documentation of ownership or control of facility space used Documentation of ownership or control of facility space used in performing the services for which you are seeking the ICECin performing the services for which you are seeking the ICEC

Documentation of ownership or control of equipment, tools, Documentation of ownership or control of equipment, tools, materials, or vehicles used in performing the services for materials, or vehicles used in performing the services for which you are seeking the ICECwhich you are seeking the ICEC

Color photocopy of a current ID issued to the applicant by the Color photocopy of a current ID issued to the applicant by the U.S. or a state or territory of the U.S.U.S. or a state or territory of the U.S.

Template of the contracts you intend to use as an Template of the contracts you intend to use as an Independent Contractor under the ICECIndependent Contractor under the ICEC

Certificate of Compliance with Minnesota Workers’ Certificate of Compliance with Minnesota Workers’ Compensation Law form available at Compensation Law form available at

www.dli.mn.gov/ccld/icec.aspwww.dli.mn.gov/ccld/icec.asp


Discretionary InformationDiscretionary Information

Section BSection B (5 of the 11 items must be provided) (5 of the 11 items must be provided)

State or Federal tax documents that show income earned and State or Federal tax documents that show income earned and tax paid and owed, such as IRS tax returns on forms 1040 tax paid and owed, such as IRS tax returns on forms 1040 and 1040SS and MN Department of Revenue tax returns on and 1040SS and MN Department of Revenue tax returns on form M1, income, profit or loss from a business such as IRS form M1, income, profit or loss from a business such as IRS Schedule C or C-EZ, self-employment tax paid or owed such Schedule C or C-EZ, self-employment tax paid or owed such as IRS Schedule SE, the sale of business property such as as IRS Schedule SE, the sale of business property such as IRS form 4797, reporting cash payments received in a trade IRS form 4797, reporting cash payments received in a trade or business such as IRS form 8300, certificate of exemption of or business such as IRS form 8300, certificate of exemption of payment of sales tax such as MN Department of Revenue payment of sales tax such as MN Department of Revenue form ST3 and IRS 1099 formsform ST3 and IRS 1099 forms


A commercial liability insurance policy or bond covering you or your A commercial liability insurance policy or bond covering you or your business, office equipment and materialsbusiness, office equipment and materialsA workers’ compensation policy covering the applicantA workers’ compensation policy covering the applicantBusiness or building permits held or applied for Business or building permits held or applied for Bills or invoices from and payments made to vendors, suppliers, Bills or invoices from and payments made to vendors, suppliers, subcontractors, or other personssubcontractors, or other personsContracts with vendors, suppliers, subcontractors, or other personsContracts with vendors, suppliers, subcontractors, or other personsBank statements and accounting statements showing receipts, Bank statements and accounting statements showing receipts, expenditures, and profit or loss for your businessexpenditures, and profit or loss for your businessTrade or professional memberships or affiliationsTrade or professional memberships or affiliationsMarketing or advertising materialsMarketing or advertising materialsDocumentation of payment to other independent contractors as Documentation of payment to other independent contractors as shown on IRS form 1099 and 1096shown on IRS form 1099 and 1096Documentation of compliance of laws related toDocumentation of compliance of laws related to

A) Workers’ compensation or unemployment insurance and A) Workers’ compensation or unemployment insurance and B) Payment or withholding or wages as shown on IRS W-2 and W-3 B) Payment or withholding or wages as shown on IRS W-2 and W-3

forms, IRS forms 941 and 944, MN Department of Revenue annual forms, IRS forms 941 and 944, MN Department of Revenue annual withholding/reconciliation and information returnswithholding/reconciliation and information returns

Discretionary InformationDiscretionary Information (cont’d.)(cont’d.)


ICEC – Independent Contractors ICEC – Independent Contractors Prohibited ActivitiesProhibited Activities

An individual shall not:An individual shall not:

(1) perform work as an independent contractor without (1) perform work as an independent contractor without first obtaining from DLI an independent contractor first obtaining from DLI an independent contractor exemption certificate; exemption certificate;

(2) perform work as an independent contractor when the (2) perform work as an independent contractor when the DLI has denied or revoked the individual's independent DLI has denied or revoked the individual's independent contractor exemption certificate; contractor exemption certificate;

(3) transfer their ICEC to another individual or allow (3) transfer their ICEC to another individual or allow another individual to use the individual's ICEC;another individual to use the individual's ICEC;


ICEC Prohibited Activities ICEC Prohibited Activities (Cont’d)(Cont’d)

(4) alter or falsify an ICEC;(4) alter or falsify an ICEC;

(5) misrepresent the individual's status as an (5) misrepresent the individual's status as an independent contractor; or independent contractor; or

(6) make a false material statement, (6) make a false material statement, representation, or certification; omit material representation, or certification; omit material information; or alter, conceal, or fail to file a information; or alter, conceal, or fail to file a document required by this section or any rule document required by this section or any rule promulgated by the commissioner under promulgated by the commissioner under rulemaking authority set out in this section.rulemaking authority set out in this section.



A person shall not: A person shall not:

(1) require an individual through coercion, (1) require an individual through coercion, misrepresentation, or fraudulent means to misrepresentation, or fraudulent means to adopt independent contractor status; adopt independent contractor status;

(2) knowingly misrepresent that an individual (2) knowingly misrepresent that an individual who has not been issued an ICEC or is not who has not been issued an ICEC or is not performing services for the person under an performing services for the person under an independent contractor exemption certificate is independent contractor exemption certificate is an independent contractor; oran independent contractor; or



(3) make a false material statement, (3) make a false material statement, representation, or certification; omit material representation, or certification; omit material information; or alter, conceal, or fail to file a information; or alter, conceal, or fail to file a document required by this section or any rule document required by this section or any rule promulgated by the commissioner under promulgated by the commissioner under rulemaking authority set out in this section.rulemaking authority set out in this section.

- Minn. Stat. §181.723, subd. 7(b) - Minn. Stat. §181.723, subd. 7(b)


What are the penalties What are the penalties for non-compliance?for non-compliance?

Individuals and contractors who fail to Individuals and contractors who fail to comply with subdivision 7 of the statute comply with subdivision 7 of the statute are subject to a penalty of up to $5,000 for are subject to a penalty of up to $5,000 for each violationeach violation

Penalties will be deposited in the Assigned Penalties will be deposited in the Assigned Risk Safety AccountRisk Safety Account


What are the penalties What are the penalties for non-compliance? for non-compliance? (Cont’d)(Cont’d)

Violators will be reported to other state Violators will be reported to other state agencies: agencies: MN Department of RevenueMN Department of Revenue MN Department of Employment and MN Department of Employment and

Economic Development Economic Development MN Department of Labor and IndustryMN Department of Labor and Industry

Workers’ CompensationWorkers’ Compensation

Construction Codes and Licensing Enforcement Construction Codes and Licensing Enforcement


BenefitsBenefits

Intended to benefit the general contractors Intended to benefit the general contractors who have been obeying the law by making who have been obeying the law by making it more difficult for non-compliant general it more difficult for non-compliant general contractors to continue to misclassify their contractors to continue to misclassify their workers, and it benefits employees by workers, and it benefits employees by ensuring they receive the full protection of ensuring they receive the full protection of the law.the law.


BenefitsBenefits

True independent contractors should True independent contractors should benefit by avoiding problems with potential benefit by avoiding problems with potential employers (general contractors) by clearly employers (general contractors) by clearly establishing their legal status as an establishing their legal status as an independent contractor.independent contractor.


What if I have more questions?What if I have more questions?

For more information the following For more information the following resources are available:resources are available:

www.dli.mn.gov/ccld/icec.aspwww.dli.mn.gov/ccld/icec.asp

Info line 651-284-5074Info line 651-284-5074

MN Department of Labor and Industry MN Department of Labor and Industry 443 Lafayette Road N. 443 Lafayette Road N.

St. Paul, MN 55155 St. Paul, MN 55155


Other Agency InformationOther Agency Information

Secretary of StateSecretary of State www.sos.state.mn.uswww.sos.state.mn.us

Department of RevenueDepartment of Revenue www.dor.state.mn.uswww.dor.state.mn.us

Department of Employment and Economic Department of Employment and Economic DevelopmentDevelopment www.deed.state.mn.uswww.deed.state.mn.us

IRSIRS www.irs.govwww.irs.gov

Independent Contractor Independent Contractor Exemption CertificateExemption Certificate

Q & AQ & A


Question: My husband is a self-employed Question: My husband is a self-employed remodeler who works for other contractors. His remodeler who works for other contractors. His

only employees are our two sons. They are only employees are our two sons. They are self-employed on their taxes, they do not meet self-employed on their taxes, they do not meet

the nine-factor test. Who needs an ICEC?the nine-factor test. Who needs an ICEC?

Answer: Your husband will need the Answer: Your husband will need the exemption certificate. Your sons exemption certificate. Your sons

won’t need it because they are your won’t need it because they are your husband’s employees.husband’s employees.

Question: My subcontractors are Question: My subcontractors are hiring subcontractors; do I need to hiring subcontractors; do I need to

check and hold their ICEC?check and hold their ICEC?

Answer: No, but for your Answer: No, but for your protection it is highly protection it is highly

recommended to have proof of recommended to have proof of their workers’ comp insurance.their workers’ comp insurance.

Question: I have been hired to cut grass Question: I have been hired to cut grass for a commercial building. Do I need an for a commercial building. Do I need an

ICEC?ICEC?

Answer: No.Answer: No.

Question: I have also been hired by a general contractor to landscape new

construction. Do I need an ICEC?

Answer: Only if the landscaping is a part of the contract for the construction of the

building.

Question: What if my subcontractor’s Question: What if my subcontractor’s ICEC is revoked? How do I find out?ICEC is revoked? How do I find out?

Answer: According to MN Rule Answer: According to MN Rule 5202.0160, sub. 3, the DLI will serve 5202.0160, sub. 3, the DLI will serve the revocation letter to all contractors the revocation letter to all contractors

reported to the Department by the reported to the Department by the ICEC holder. The revocation is ICEC holder. The revocation is

effective seven days after the day of effective seven days after the day of receipt.receipt.

Question: I work for Habitat for Humanity. Question: I work for Habitat for Humanity. Do I need an ICEC? Do I need an ICEC?

Answer: If you’re Answer: If you’re volunteeringvolunteering your services to Habitat or a your services to Habitat or a

similar organization, you do not similar organization, you do not need an ICEC. If you are being need an ICEC. If you are being

paid, you need one.paid, you need one.

Question: I’m a sole proprietor painter. Question: I’m a sole proprietor painter. Do I need an ICEC? Do I need an ICEC?

Answer: If you work strictly for Answer: If you work strictly for homeowners, you do not need an homeowners, you do not need an

ICEC. If you work as a subcontractor ICEC. If you work as a subcontractor for a general contractor, you will need for a general contractor, you will need

an ICEC.an ICEC.

Question: If our MN company hires an Question: If our MN company hires an Independent Contractor who lives in WI and is Independent Contractor who lives in WI and is

hired to work in IL, does he need an ICEC?hired to work in IL, does he need an ICEC?

Answer: No. In this example the Answer: No. In this example the location of the work is the deciding location of the work is the deciding factor. In you example the worker factor. In you example the worker

would be governed by the laws in the would be governed by the laws in the state where the work is performed.state where the work is performed.

Question: Why do we need more Question: Why do we need more government regulation in the construction government regulation in the construction

industry?industry?

Answer: The ICEC program is intended to Answer: The ICEC program is intended to “level the playing field.” The goal is to make “level the playing field.” The goal is to make it easier to insure that all employees are it easier to insure that all employees are properly covered for workers’ comp and properly covered for workers’ comp and unemployment insurance and have the unemployment insurance and have the proper taxes withheld to avoid problems proper taxes withheld to avoid problems with other state and federal agencies.with other state and federal agencies.


Questions?Questions?

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